Introduction: Reeves’ Potential Property Tax Overhaul

When I bought my current family home in 1998, the rates of Stamp Duty were broadly 1.5% up to £500,000 and 2% on any property above £500,000.  Happy days! Since then, Stamp Duty rates have risen relentlessly first under Gordon Brown, then George Osborne and now Rachel Reeves so that we have reached the position that the top rate of 12% bites on the slice of the purchase price above £1.5m and if the property is a second dwelling it attracts a rate of SDLT of 17% on the slice of the price above £1.5m. If you are a non-UK resident buyer, you can add a further 2% to the 17% giving you a top rate of 19%.

Having plucked that goose almost to death, Reeves’ attention is now turning to how to milk the hard-working and prosperous members of society who own their own homes from a different angle. With Labour having boxed themselves in from the obvious routes to raise further tax revenue by pledging not to raise rates of income tax, national insurance or VAT in order to get themselves elected, Reeves is now desperate as the cost of servicing the UK’s debt increases, and she is borrowing just to pay the debt interest on current borrowing.

She is now flying kites before the October Budget to try to gauge reaction to her increasingly unhinged ideas for extracting further taxes from the properties owned by successful hard-working people and the prosperous retired members of society in order to fund the increasing amounts of benefits paid to people who either cannot or choose not to work plus the increasing numbers of people arriving here illegally. 

This blog analyses and comments on Reeves’ ideas for taxing residential property in the October 2025 Budget.

What Are The Proposed Property Tax Changes?

There seem to be three possible changes. First, to abolish the long-standing exemption from Capital Gains Tax on the sale of one’s only or main residence either for all homes or just for homes worth more than £1.5m (coincidentally the threshold at which the top rate of Stamp Duty kicks in). Second, to impose what is called a “Proportional Property Levy” charged annually on owners of homes in order to abolish Council Tax and Stamp Duty. Third, to turn-up Council Tax massively on homes worth more than a certain amount combined with a revaluation of residential properties the values of which were last set in England on 1 April 1991.

Are The Proposed Changes a Wealth Tax?

Yes, each of these changes is a “wealth tax” simply because they mainly go after the minority of people who own valuable residential properties and tax them on the value represented by that property.

How Would The New Proportional Property Levy Would Work?

The proportional property levy would work by charging 0.44% on the value of a house up to £500,000 (which would replace Council Tax), then 0.54% on the value between £500,000 and £1m and then 0.81% on the slice of value above £1m (with these two higher levies replacing stamp duty). So, a house worth £750,000 would pay tax each year of £3,550 and a house worth £1.5m would pay £8,950.

The proponents of this idea suggest that it would raise enough revenue to enable Council Tax and Stamp Duty to be abolished but they admit that there would be more losers than winners under their proposal and you couldn’t charge the higher rates to owners of existing homes who had already paid Stamp Duty when they bought their home.

My verdict: Impractical, because the higher rates and the abolition of Stamp Duty would have to be phased in over time only on fresh buyers after the change and it will also freeze the housing market as existing owners who will lose under the proposals and have already paid Stamp Duty refuse to move in order not to have to pay the new higher levies.

There is also the need to carry out a revaluation of all residential properties and separately the down-valuation effect of such a new tax on properties as potential buyers and property valuers factor in the additional tax costs on moving up the housing ladder thus leading to weakening house values that have a knock on effect on the amount of tax revenue that will actually be raised from these measures.

Who Are The Winners And Losers In The Proposals?

The proponent of these proposals has published the following table showing winners and losers:

Figure 5: Annual winners from replacing council tax and stamp duty, by council tax band

Source: Onward analysis

Capital Gains Tax (“CGT”) in the Plan

This is even more problematic than the idea for a property levy to replace Council Tax and Stamp Duty. The suggestion is that the existing exemption from CGT for the sale of your only or main home should be abolished. This exemption has existed since the CGT was properly introduced in 1965 and an old hand in the Treasury once told me that historically they saw this exemption as the quid pro quo for the stamp duty charge when you bought your home. Not any more it seems as the Treasury now views this exemption as “costing” it £31 billion in tax revenue.

My verdict: Insane, because (1) for a start most house price gains are purely inflationary and so if you bought your home in year 1 for 100 and sold it in say, year 15 for 250, you would pay CGT of 24% on the 150 gain which gain was purely due to the increase in property prices – in real terms you would have less value than when you started owning your home especially after factoring the interest on any mortgage; (2) the very suggestion of such a tax, let alone its actual imposition, will freeze the residential property market as potential sellers refuse to move and perhaps use equity withdrawal instead if capital is needed; and (3) valuers will immediately down-value properties by the amount of the tax on a sale as will potential purchasers creating various problems especially for those who may find themselves quickly in negative equity.

Margin calls may be made by lenders on borrowers who will have exceeded the agreed debt to equity ratio thus leading to forced sales and a further weakening in the market.

Could The Property Tax Changes Actually Work?

The changes are very unlikely to work for the reasons given above and the lessons from past reforms by Gordon Brown, Osborne and Reeves herself suggest that the proposals will have a freezing effect on the property market not to mention Labour’s chances of re-election when the time comes.

Moving a home into a trust or a company purely in order to try to avoid the effect of these proposals is fraught with risk and could lead to unanticipated tax charges and is best avoided unless there is a pressing non-tax reason to transfer the home into trust such as providing for the long-term care of a disabled person after their parents have died.

Conclusion 

Overall, Reeves’ proposals are barmy and smack of obvious desperation to escape the straight jacket of her self-imposed fiscal rules. Even more barmy is the fact that Reeves’ thought it sensible to fly these kites three months before the Budget thus terrifying prospective buyers, sellers, estate agents, valuers and mortgage lenders.

For someone who claims to be an economist this was truly a stupid thing to do. But then as David Dunning and Justin Kruger noted in their 1999 paper, stupid people don’t realise they are stupid.